The Art of Staying the Course: Why Doing Nothing is Often the Hardest (and Best) Strategy

Markets don’t need a crisis to feel uncomfortable. Even in “normal” years, share markets can swing sharply on changing expectations for inflation, interest rates, company earnings, geopolitics, and policy. Some of the triggers are global, some could be local - and many are unpredictable.

If you’ve noticed your investments or KiwiSaver balance moving around more than usual, that can be unsettling. But these price swings aren’t a sign that there is a problem to handle.

For long-term investors, it’s a feature of growth assets, and the price we pay for higher expected returns over time.

• What is volatility and why it shows up regularly
• What uncertainty can mean for investors
• 4 key long-term investing principles & how to apply them
• When you should consider making changes

One useful way to think about volatility is the market’s “noise level”. When uncertainty rises, prices often move more sharply day to day. One way to measure this noise is through the volatility index (VIX), also known as Wall Street's "fear gauge", which tends to spike when markets are stressed and fall when markets are calmer.

The VIX doesn’t predict where markets will go next, but it does measure how much the S&P 500 is expected to fluctuate over the next 30 days based on the increased price of “call options” and “put options” providing protection against loss. When it spikes, it can help explain why headlines suddenly feel louder and why staying the course matters most.

A great example of this was in April 2025. Following the US tariffs announcement, we saw the VIX jump to levels not seen since the COVID-19 pandemic shutdown in March 2020. However following that spike, the market has remained relatively resilient despite the major reactions in the moment.

Over any 5 - 10-year period, investors typically live through multiple waves of uncertainty like inflation scares, recessions (or recession fears), geopolitical events, policy changes, and sudden shifts in interest-rate expectations. The details change, but the pattern doesn’t: markets move ahead of the news, and the news often feels worse near market lows.

For example, in 2009 the share markets turned upwards months before The Global Financial Crisis headlines eased, and in 2020 the sharp rebound began well before lockdowns lifted. Even in 2023, markets strengthened despite ongoing recession calls. History shows that while shocks come in different forms, the market’s forward‑looking nature has been remarkably consistent.

In New Zealand, uncertainty doesn’t only come from offshore. Election years, such as 2026, naturally introduce a layer of "wait and see" behaviour across the economy. During these periods, businesses might pause investments or delay major decisions until policy direction is clearer, and consumers might become more cautious with conversations in the media focusing on concerns such as cost-of-living pressures.

Markets can react to potential changes to tax, housing, and infrastructure regulations. However, it is important to remember that markets do not just respond to the election result itself; they respond to surprises versus what was already expected.

By the time an election arrives, much of the perceived risk is often already reflected in market prices. This reinforces why trying to trade based on political headlines is rarely a winning strategy for building long-term wealth.

Falling markets and higher volatility can certainly be unsettling. Yet, for investors with long-term goals who are invested in shares, this is simply a reminder that volatility is the price paid for higher expected returns.

These market shocks aren't new. Typically, and in most years, we see large swings in returns and associated concerning news headlines.

The chart below shows the annual returns of the S&P 500, represented by the blue and orange bars, compared with the turquoise diamonds being the largest drawdowns (period of negative performance) within the year.

While the S&P 500's annual return remains uncertain year on year, history shows that, in some cases, even drops of 20% or more within a year have rebounded to deliver positive results by year-end. 2025 was a typical year in this respect, while the index calendar return was an impressive 17.88% in USD, the maximum intra-year drawdown (associated with Liberation Day trade tariffs) was 19.6% (from 19 February to 8 April), with the best day of the year being 9 April. On 9 April there was a single day rise of 9.5% and the VIX fell from 52 to 34.

While the short-term future is uncertain, what remains true are the key principles that have guided long-term wealth builders.

Being spread across a broad basket of assets, across the globe and across industries, lowers your long-term risk by preventing exposure to a single event.

You can choose from a range of diversified options to help you invest toward your goals. If you prefer not to self-select, we have pre-made diversified funds such as our High Growth, Balanced, and Cash Plus funds that provide instant diversification across multiple asset classes.

And here’s something many investors don’t realise: you can achieve broad diversification all within one platform - there’s no need to spread your investments across multiple providers.

Using a core satellite strategy is an easy way to diversify – learn more here.

Generally, the longer your investment horizon, the higher proportion of your investments can be in "growth assets" like shares.

For short-term needs, lower-risk investments like the Kernel Cash Plus Fund or Smart Saver provide stability, while long-term investors can access a range of core and diversified funds for growth potential.

You can learn about investing based on your time horizons here.

KiwiSaver investments exemplify this approach, where you're regularly investing regardless of market conditions.

If you're building wealth outside of a KiwiSaver investment, setting up an automatic investment plan can be an effective "set and forget" strategy, letting time and compounding work their magic.

For larger lump sums intended for long-term investment, adding to the market in a few chunks can provide comfort and avoid "buyer's remorse" if the market dips shortly after investing.

Learn more about how to invest a lump sum here.

When surrounded by negative headlines or social media doomscrolling, emotions can easily hijack decision-making - often leading to poor outcomes. Trying to time the market by switching from growth investments to cash is a dangerous game that very few get right.

You might miss the bottom, but there is a high chance you will miss the recovery. For example it would have been very difficult to choose to reinvest on 9 April 2025. If you have a plan in place and have followed the principles above, take a moment to zoom out and focus on what you can control: fees, diversification, and alignment with your investment horizon.

Learn more about common mistakes investors make here.

While the core message of this blog is to resist emotional reactions to market headlines, it is important to understand practical reasons why you might adjust your investment approach.

The key is distinguishing between reactive panic and proactive, circumstance-driven decisions.

If you were planning to buy a house in 10 years but have now decided to buy one much sooner, your portfolio should reflect that shorter timeline, moving toward more stable, income-focused assets.

A material change in your personal situation will likely warrant an adjustment to your portfolio timeline if you require your assets sooner or later than planned.

If you have discovered through experience that a particular risk level is no longer suitable then it might be time to adjust. However, this realisation should come after reflection, not in the heat of a market downturn.

A useful exercise is to put it into hard numbers, for example: "If my $20,000 portfolio fell 30% tomorrow, down to $14,000, would I panic-sell, or would I see it as a buying opportunity?"

Election results, interest rate announcements, a sharp market dip, or a week of negative headlines should not prompt you to overhaul your strategy.

These are the normal rhythms of markets, and reacting to them typically results in buying high and selling low, the opposite of what you want. If your circumstances have not changed, your genuine risk tolerance has not shifted, and your portfolio allocation is still appropriate for your timeline, then the answer is almost always to stay the course.

The discipline of investing is not about making frequent changes; it is about making the right changes at the right time, for the right reasons for you. By being clear about what constitutes a legitimate trigger for change, you can avoid the trap of reactive decision-making while still maintaining the flexibility to adapt when your life genuinely demands it.